Finance Committee on Oct. 3rd, 2024

[Benjamin Bergen]

Definitely there is red tape, and there are challenges on that issue.

In terms of investment, though, we're seeing some more friction, really, in getting first customers. You'll often struggle to have government actually purchase and buy domestic technology. They'll often fund them. They'll give them funding through different programs. Really, what our members are telling us is that they would much rather have a purchase order than a grant or a subsidy because they can take that and go to a bank, get funded and increase their ability to fund their operations. For us, it's a shift in how some of these policies are structured, and through that you'll be able to help unlock capital that is very much needed.

[Pat Kelly, Conservative, Calgary Rocky Ridge, AB]

It's fair to say, though, that if we are to...? You rightly spoke of the declining per capita GDP that we've experienced in Canada over the last 10 years. It's the worst performing economy, projected to be the worst performing economy in the OECD.

You mentioned in your opening remarks the stagnant productivity since 2000. Could you clarify that remark? Also, what are we going to need to do about this? We need to incentivize innovators, and we're going to need.... Taxing these innovators is not going to do it. Could you give us some thoughts on that?

[Benjamin Bergen]

Sadly, I don't have a short answer here, so I'll try to be as succinct as possible.

In essence, what we have to realize is that the economy has shifted such that wealth and prosperity are no longer actually captured in labour, no longer captured in jobs. Wealth and prosperity are captured in those who actually own ideas, own intellectual property and own data.

The value chain system has shifted. In order for us to be able to build wealth and prosperity and to reverse the stagnation, we have to build an innovation economy that can capture value chains. We actually have to shift many things at once. It's not just one tax policy that's going to unbind everything. What we have to look at is how you build firms that are able to keep and retain intellectual property here. When we're looking at how we fund things, are we generating IP? Are we retaining IP? Are we commercializing it?

If you marshal government programs, whether—

[Pat Kelly, Conservative, Calgary Rocky Ridge, AB]

Just quickly, as I don't have much time left, is it fair to say that there's an incredible deficit of investment between Canada and the United States?

The cross-border investment between Canada and the United States for many years was positive in Canada's favour. Canadians are now investing their money in the United States. The gap is almost half a trillion dollars. Do some of these failures that you've spoken of contribute to this deficit in investment in Canada?

[Benjamin Bergen]

If you don't have a framework that actually captures wealth, it will leave and go elsewhere. Money is smart. It moves.

I would also point out that 125,000 Canadians left Canada in 2023, a record number, and a lot of those were in the tech sector. Not only are we seeing capital flee and go south of the border; we're actually seeing a lot of our highly skilled workers leave as well.

[Pat Kelly, Conservative, Calgary Rocky Ridge, AB]

That's the legacy of nine years now. This is when the capital flight began.

[The Chair, Liberal, Peter Fonseca]

Thank you, MP Kelly. That is the time.

Now we're going to MP Sorbara, please.

[Francesco Sorbara, Liberal, Vaughan—Woodbridge, ON]

Thank you, Chair.

There's a lot of great discussion and thoughtful questions from all members of the committee today.

It's great to have all the witnesses here both virtually and in person. Thank you for availing yourselves and thank you for your ideas and your testimony.

To the Basic Income Canada Network, Sidney and Sheila, thank you and welcome. I believe you're from Toronto, if I'm not mistaken.

[A voice]

Winnipeg.

[Francesco Sorbara, Liberal, Vaughan—Woodbridge, ON]

Winnipeg and Etobicoke, I hear. I'll give a shout-out to Etobicoke today, not Vaughan, which is something I usually don't do.

When we think about Canada's social fabric and the social programs we have in place, I like to think about having four groups of individuals, of Canadians, in our country to take care of. We have our seniors and Canadians with disabilities. Then we have families with kids, and we have working Canadians—who can be at different stages of their lives, divorced, single, etc.—with no kids. When we look at our social programs in those four buckets, we're doing very well.

Think about seniors, the poverty rate and what we've done for seniors since the late 1960s when we brought in CPP, the Canada Health Care Act and so many great things and what we've done over the last 10 years as a government. Of course, I can rhyme off a number of measures, including reversing the old age security and GIS increases from 67 back to 65, which puts $20,000 more in the pockets of seniors when they retire that they would have lost, and the increase in the GIS or the expansion of the Canada pension plan, which was done by the former finance minister in conjunction and collaboration with all the provincial ministers. It was a great job.

When I think of families, I think of the early learning national day care plan we put in place that may, in fact, be in jeopardy because the opposition party wants to get rid of it. It's clear on Instagram and other sources that they would like to get rid of it. We think of the Canada child benefit that we put in place, which delivers about $30 billion a year to families and about $100 million in my riding in Vaughan—Woodbridge.

Then we think of working families and what we've done with the Canada workers benefit, income tax cuts, raising the personal exemption amount to $15,000 and cutting the middle income-tax bracket. Again, these are real savings. I think it's like $15 billion in annual tax savings a year when you combine the two, so these are big measures.

I haven't even mentioned the Canadian dental care plan. I think almost 450,000 Canadians have gone to the dentist because of this plan. We're covering a gap. We have more work to do. On pharmacare, there's a gap there that needs to be covered.

I think we're going the right way. I just wanted to say that because I understand you folks on basic income. I disagree with it. I think we've put in place a social fabric that's great. I wanted to speak to you on that. I'm not going to ask a question because I have to shift gears in my limited time.

I want to go to Benjamin over at the Council of Canadian Innovators, whom I have a lot of respect for. I have interacted with many of his members.

Benjamin, I will be as frank as possible. I'm not a doom and gloom person. I think Canada is the best country in the world. We are a G7 country. I think our fiscal framework speaks for itself. I think our innovators are the best in the world. Our investments, whether they are in AI or electric vehicles, whether they are in steel, aluminum, the agricultural sector or the wine industry.... I can go on and on. I think this is Canada's decade. I've said it in the House. We have some work to do to make sure and solidify that it's Canada's decade, but we're on the right track.

I've read through your recommendations. The SR and ED program is over $100 billion of tax expenditures that the federal government does on an annual basis, if my calculation serves me well. How important is reviewing the SR and ED program, in your view, to unlocking even greater amounts of innovation for our economy?

[Nicholas Schiavo]

Ben, I'd be happy to—

[Francesco Sorbara, Liberal, Vaughan—Woodbridge, ON]

This is for Ben or Nick, whoever.

[Nicholas Schiavo]

I'm happy to kick things off. Let me first say, Mr. Sorbara, thank you for the question, and we agree that this is definitely the greatest country in the world. I think we all want those programs you listed. I think how we pay for them is maybe where we disagree.

To your question on SR and ED, this is integral. As Benjamin said, this is the largest, the oldest and the most important innovation program we have in this country. It's nearly $4 billion every single year, and we are squandering a lot of that money, not only to foreign multinationals but also to the big four consultants for just filling out the application. It is in desperate need of reform, and we've participated in those consultations.

I'll also note, though, that, when we developed our policy brief, we did so in a thoughtful way to make it cost-neutral. We know that money is tight right now, so we wanted to be thoughtful about that. That also requires that Canada implement a national innovation box or a patent box—

[Francesco Sorbara, Liberal, Vaughan—Woodbridge, ON]

Nick, I want to jump in here before I run out of time.

I wanted to ask about the national innovation box or patent box regime in recommendation two in your brief. Would it be wise to shift resources from one program into that box?

From everything I've read...and you have a lot of very thoughtful leaders within the council. Is a national innovation box where we would see the first derivative change in gains on the innovation side and the productivity side? Would that be a key driving force for us?

[Nicholas Schiavo]

Yes.

The whole idea behind our vision with an innovation box or a patent box, as you mentioned, is moving from inputs to outcomes. For those on the committee who may not be familiar, it's an income-based incentive to encourage the commercialization of IP in Canada rather than direct R and D spending. More than a dozen European Union countries have implemented some form of patent box, along with China, Australia and the United Kingdom. One of the reasons for that is that these tend to be more effective for small, open economies like Canada's that rely not only on exports but also on global value chains.

We are really trying to rebalance SR and ED with this patent box to say that, if you want the benefits in terms of better tax treatment, you can have those, but you need to be commercializing that IP here in Canada and ensuring the value and the wealth of that flows back to our economy and to Canadians.

[Francesco Sorbara, Liberal, Vaughan—Woodbridge, ON]

Okay. Thank you, sir.

I think my time is up, if I'm not mistaken.

Thank you, Chair.

[The Chair, Liberal, Peter Fonseca]

Thank you, Mr. Sorbara.

I'm just looking at the time, and we don't have time to get through a full third round. What I'm going to do, as this committee is accustomed to, is divide the time amongst all the parties. We're looking at five minutes or so for each party to be able to ask questions for this final round.

We're starting with MP Bezan.

Welcome to our committee.

[James Bezan, Conservative, Selkirk—Interlake—Eastman, MB]

Thank you, Mr. Chair.

I want to thank our witnesses for joining us today. My questions are for the Council of Canadian Innovators.

You talked about how the government has been slow in adapting new technology. You talked about how Minister Champagne has started the blame game by blaming innovators. Do you feel like this Liberal government has been hostile towards innovation?

[Benjamin Bergen]

I think you have to look at the record there specifically. I did bring up William Blake, who said that execution is the chariot of genius. There have been some attempts at trying to do some things, but the delivery in terms of how they've actually been executed missed the mark. To your question about hostility, I would say that maybe they misunderstand or don't understand the complexities of an innovation economy, and the outcome of that is apparent. We've seen policies that haven't delivered. We haven't seen the successes in job creation and wealth promotion from things like the superclusters.

Rather than relying on and engaging with companies that are winners and are out there actually selling products globally, a lot of these policies are being ingested and created by folks who, candidly, don't understand how an innovation economy works. Part of our work is to educate and engage. We have definitely tried to do that with Minister Champagne and his predecessor, but when you look at the framework of what has actually been achieved, I think that record is definitely a failure.

[James Bezan, Conservative, Selkirk—Interlake—Eastman, MB]

Okay. I appreciate that.

When you look at national defence and the innovation that needs to take place there, what you see happening in Ukraine is that it has been able to stay in the fight because of innovations like using drones, electronic warfare and cybersecurity to fend off attacks from the Russians.

How can the innovation sector help Canada develop the types of defensive mechanisms we need here, including cybersecurity? When you look at AUKUS pillar two, which is all about quantum computing, AI and cybersecurity, Canada is not in the game. What can the innovators across this country do to help us from a national security and defence standpoint?

[Benjamin Bergen]

I'll kick it over to Nick in just a second, because he's very well versed in many of these pieces.

The thing about strategic procurement is that not only will it lead to economic opportunity and prosperity, but it's also part of national security. To the point in your question around things like NATO, our inability to have the capacity to defend this country and work with our partners is critical. If we're going to meet our NATO commitments, which is that 2% piece, we should do it by actually buying domestic innovation and technology that can then be sold and go global.

Right now I'm working with a particular firm whose technology the Ukrainians desperately want—it's a Canadian technology—but there's no ability for them to actually procure it. When we think about these types of things, how are we effectively using our expenditures on things like defence to not only defend ourselves but to create economic opportunity?

Nick, I'll pass it to you, if we still have time.

[James Bezan, Conservative, Selkirk—Interlake—Eastman, MB]

Mr. Bergen, can you just say what exactly that technology is that the Ukrainians need, and what the impediments are to getting it to them?

[Benjamin Bergen]

Given the NDAs that we have signed with our member companies, I'm not going to jump right into this right now in committee. However, I'd be happy to speak to you off-line about this particular piece.

[James Bezan, Conservative, Selkirk—Interlake—Eastman, MB]

Thank you.

Perhaps we can kick over on the AUKUS piece and the NATO piece to your colleague.

[Nicholas Schiavo]

Maybe just on the NATO piece I'll say that we're trying to get to that 2% target. The only way we're going to be able to do that is through procuring domestic capabilities. We know that, between 2018 and 2020, the cyber sector in Canada grew over 30% in terms of employment, R and D, and revenue, but only 8% of that came from Canadian government contracts.

To really put it in perspective, Canada's Five Eyes partners buy three times as much Canadian cyber-technology products and services than Ottawa itself. Other countries understand what we have. They are using it for their security apparatus, and for whatever reason we fail to do so. I can't tell you how many times I have met with a new member, and they have told me that they do business with the American military or with the British military, but DND is nowhere to be found. There are lots of processes in there to, I think, hold our own in our military alliances.